Colorado Latest Battle Ground as Utilities Realize Solar Energy’s Threat to their Survival
September 7, 2013
More in the continuing series on emerging impacts of distributed energy technology on the electric utility business model. In recent weeks I’ve pointed to press items from Georgia and Arizona on how solar photovoltaics could make our giant electric utilities go the way of typewriters and buggy whips.
The problem, said David Eves, chief executive officer of Xcel’s Colorado subsidiary, is that the benefits of rooftop solar do not cover the program’s costs.
“This is not about putting the brakes on solar,” Eves said. “It’s about having an honest discussion about costs and benefits.”
If changes aren’t made, however, Xcel said it wants to cut back its Solar Reward program to 6 megawatts of new solar arrays from a planned 36 megawatts.
It’s not just a Colorado fight — the battle is being waged at utility commissions from Georgia to Louisiana to California.
“We see utilities in state after state fighting,” said Carrie Hitt, vice president for state affairs at the Solar Energy Industries Association, a trade group.
Because rooftop solar cuts demand and puts kilowatt-hours on the grid, it undermines the utility’s business model, Hitt said.
“Rooftop solar doesn’t amount to a lot now,” she said. “They are worried about the future.”
Xcel is proposing cutting from 3 cents to a fraction of a penny a 10-year incentive that it offers for every kilowatt-hour a new installation in the Solar Rewards program produces.
The main battleground, however, is the price homeowners with rooftop solar get for putting kilowatt-hours onto the system — the so-called net-metering credit.
Xcel customers get a credit for each kilowatt-hour they put on the grid equal to what a residential customer is charged for a kilowatt-hour — 10.5 cents.
But rooftop solar’s benefit to the overall system is limited and worth only 4.6 cents a kilowatt-hour, according to an Xcel study.
The remainder, as well as the cost of servicing lines, is picked up by other customers, said Karen Hyde, Xcel vice president for rates and regulatory affairs in Colorado.
Solar-industry executives and advocates contend that Xcel is minimizing the benefits and overstating the costs.
“There are concerns about the size and diversity of the study sample,” said Edward Stern, executive director of the Colorado Solar Energy Industries Association, a trade group.
About 17,800 residential and small-business solar systems have been installed under Xcel’s Solar Rewards program — with customers receiving about $276 million in incentives.
The Xcel study was based on detailed data from nine meters in 2010 and 14 meters in 2011 from larger, usually commercial installations.
That was compared with data from about 100 residential meters to create a profile of net-metering use.
The study found that while the bulk of solar energy is put on the grid midday, residential demand comes in the late afternoon and evening.
“It’s fuzzy math,” said Megan Nutting, policy and markets director at SolarCity, a San Mateo, Calif.-based firm that leases arrays in 14 states and has about 4,000 customers in Colorado.
To the list of industries at risk of complete obsolescence – which at the moment includes daily newspapers, government postal services, and men-only barbershops, among others – you can add U.S. power utilities. The creeping sense of impending peril that has enveloped the power sector was made explicit earlier this year in a widely distributed, and remarkably candid, report from the Edison Electric Institute entitled “Disruptive Challenges.”
Warning of “irreparable damages to revenues and growth prospects” of utilities due to the spread of distributed power generation from renewable energy sources, the report foresees “a day when battery storage technology or micro turbines could allow customers to be electric grid independent.” The result: a “cycle of decline [that] has been previously witnessed in technology-disrupted sectors (such as telecommunications) and other deregulated industries (airlines).”
A Bloomberg BusinessWeek story last week put an even finer point on it: “In about the time it has taken cell phones to supplant land lines in most U.S. homes, the grid will become increasingly irrelevant as customers move toward decentralized homegrown green energy.” NRG EnergyNRG +1.28% CEO David Crane told the magazine that microgrids, small wind and solar, and net metering constitute “a mortal threat to the existing utility system.”
In the Kubler-Ross end-of-life model, U.S. utilities are still mostly in the denial stage. Utility executives spend a lot of time these days decrying government subsidies, particularly for rooftop solar. To be sure, several big utilities have at least hedged their bets by investing in alternative forms of power generation; Duke EnergyDUK +1%, for example, entered the renewables business in 2007 and has built some 1700 megawatts of renewable capacity since then.
Utility companies around the U.S. fear that solar companies and renewable energy incentives will replace traditional electricity.
According to a report from The New York Times, utility companies view rooftop solar energy as a threat to their traditional business model of providing electricity maintaining the grid.
In fact, some utilities have said that they should’ve fought the solar “disrupt” and are currently working to push back against government incentives for the renewable energy.
The utility companies’ worries may seem a little ridiculous at present, considering rooftop solar energy alone accounts for less than a quarter of 1 percent of the nation’s power generation.
However, incentives around the country aim to expand the use of solar power in a big way. For instance, California has a system called net metering, which pays both commercial and residential customers for their excess renewable energy that they sell back to utilities. California pays customers very well through this credit system because the payments are bound to daytime retail rates that customers pay for electricity — such as utility costs to maintain the grid.
NYT reports that from 2010 to 2012, the amount of solar installed each year has increased by 160 percent.
At present, 43 states, the District of Columbia and four territories offer incentives for renewable energy in some form or another.
Solar proponents add that solar customers deserve payment and incentives for their efforts because making more power closer to where it is used (when resold to local utility companies) can alleviate stress on the grid — making it reliable. It also helps utilities by relieving them from having to build infrastructure and sizable generators.
However, utility companies feel differently. Their argument is that solar customers, at some point, may stop paying for electricity, which means they also stop paying for the grid. This shifts the costs to other non-solar customers.